Prudential was among the gainers Tuesday as a leading bank predicted the life assurer would act to raise the profile of its Asian business.

After meeting Prudential’s management, Merrill Lynch said it expected chief executive Mark Tucker would look to address the undervaluation of the Asian franchise within the group’s share price. The bank also noted speculation of a possible spin-off of Prudential’s Asian arm and flagged up the possibility that the group could be a target for a sovereign wealth fund.

“Asia is firmly back in focus now that the UK issues have been addressed and we expect initiatives from the company next year to improve disclosure and further increase the profile of Asia,” Merrill wrote in a “buy” note, setting a price target of 840p. Prudential closed up 1.5 per cent at 666p.

In the wider market, early gains for the FTSE 100 were undermined as Wall Street turned negative. The main index closed just 1.5 points higher at 6,279.3 while the FTSE 250 gained 46.8 points, or 0.5 per cent, to 10,187.2.

Cadbury Schweppes stood out as Nelson Peltz’s Trian Fund Management stepped up its campaign to shake up the confectionery and soft drinks group, arguing the stock could be worth up to 970p a share.

Trian, which together with sovereign wealth fund Qatar Holding has a 4.5 per cent interest in Cadbury, called for more aggressive margin targets and the return of capital to shareholders. “If Cadbury fails to make meaningful operational progress in 2008, Trian will look to become significantly more active in evaluating all of its alternatives as a large shareholder,” the group wrote in an open letter to Cadbury’s board of directors. Cadbury ended up 2.5 per cent at 623p.

London Stock Exchange was the biggest blue-chip gainer, up 2.7 per cent to £18.55, after a bullish note from Citigroup, which raised its target price on the stock from £16.50 to £18.25.

“Heightened volatility caused by the credit crunch is proving positive for LSE’s volumes, and the projected slowdown in H2 trading shows no sign of materialising,” analyst Daniel Garrod wrote.

Friends Provident added 0.8 per cent to 154.3p as Cazenove said recent weakness in the life assurer’s share price had created a buying opportunity and predicted “a strong likelihood of part disposals, and a possibility of a full sale” of the business.

Cable & Wireless lost 1 per cent to 181.4p as Citigroup placed 20m shares in the telecommunications group at 180p each.

Northern Rock, down 4.9 per cent at 86.9p, was in focus as the Treasury extended guarantees given to the lender in an effort to preserve the group’s credit rating.

Alliance & Leicester lost 3.5 per cent to 635½p as ratings agency Moody’s Investors Service placed the bank’s B- financial strength rating on review for possible downgrade. “Even after recent writedowns, A&L still has significantly more exposure to SIVs and CDOs than its direct peers,” said James Hutson at Keefe Bruyette & Woods, who rates the stock “underperform”.

In the mid-caps, Aggreko gained 13.3 per cent to 505½p as the supplier of temporary power generators said earnings would rise 50 per cent this year.

Debenhams jumped 8.3 per cent to 81¾p as the market digested news that Milestone Resources Group, a vehicle linked with retail entrepreneur Micky Jagtiani, had acquired 7.4 per cent of the department store group.

Mr Jagtiani is working with the Iceland’s Baugur on a proposed acquisition of Saks 5th Avenue, the US department store. “If Mr Jagtiani wanted to acquire Debenhams, now could be the time to do it, as investor confidence is very low,” said Nick Hawkins at Bear Stearns.

Tradus, the internet auction group formerly know an QXL Ricardo, rose 12 per cent to £18.15 after agreeing a £946m takeover from South Africa’s Naspers. Noting the stock closed 15p above the £18-a-share offer price, dealers said it was possible that the likes of Ebay could yet enter the bidding.

Building insulation and roofing group SIG slumped 7.2 per cent to 710p as Ireland’s Kingspan cautioned on the outlook for the building materials market.

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